Tesla Beating Detroit? That's Just Nonsense

There was once a year where all of the Detroit Three lost money. It was correctly reported at the time by some wag that the local Girl Scout cookie sale had generated more profit than all Detroit car companies combined, and that maybe the Girl Scouts should run Detroit.

One will note the similarity in logic with a breathlessly positive piece on Elon Musk's Tesla Motors that appeared on Forbes.com earlier this week.

Tesla, if you've missed it, is the California electric car startup created by the entrepreneurially gifted Musk, and it has been generating a lot of news lately. Happily for the company, almost all of it is good. The company's well-styled "Model S" sedan is receiving excellent reviews and is selling well. As a great believer in the ultimate electrification of the automobile, and as a good friend of Musk, I see all this as very good news.

However, as is usual in such cases, some observers become thoroughly intoxicated by a development they welcome, but whose importance they wildly overestimate.

And thus it is with one of my fellow bloggers, a Forbes.com colleague no less, who sees, in the initial demand for the Tesla Model S sedan, clear evidence that Tesla is smarter, better, in higher demand and generally more successful than General Motors, Ford Motor, Toyota or Volkswagen. As "evidence," this (apparently Detroit-hating) e.scribe cites the undeniable fact the the Model S, in its initial low-volume launch phase, is sold out, whereas almost all mainstream producers are offering incentives in a weak overall market.

This is a little bit like saying that a new, exclusive, high-end restaurant in New York, with a three week reservation list, is "doing a better job" in the food business than McDonald's, Burger King, Wendy's and Pizza Hut combined, since the latter are all offering "deals".

The offending blogger obviously does not understand scale. Here's a nugget to help: The total of all Tesla cars ever produced since 2006, from the initial announcement of the electric roadster to the current Model S sedan, amounts to a couple of hours of GM's global production. The company's earnings from that effort likely amount to a similarly minute fraction of GM's business.

Bottom line: Tesla produces a nice car for a social elite that can afford $80-110K transportation. That's a thin market, where innovation is rewarded, but prone to being discarded with equal speed when the next must-have "gold Rolex" comes along. Don't confuse it with what Detroit does for a living.